Short-Term TSLA Price Movements - 2016

[electracity]

If Elon wants this to happen, he has to convince the voting shareholders.

He already has. Look at the big institutional shareholders. Look at the shares represented by board members.

 

[Vitold]

[...]

Negatives about Solar City:
-Solar City's advertising is terrible (the sun god Ra ads were a good example of WTF!? Their twitter account is bizarre too) -- their advertising reminds of me of GM trying to sell the Volt. They have no idea how to sell their (good) product or how to speak to their customers. Tesla excels in this area. I hope Solar City doesn't dilute Tesla's excellence in this area.

-Solar City's sales tactics are basically the opposite of Tesla. They are pushy, and feel deceptive. Reminds me of car dealerships. This will have to change, or it will damage one of the shining points of Tesla.

I'm guessing that is their goal. Once SolarCity starts producing their own, "one of the kind", "best in class", etc solar panels combined with Tesla design and batteries they will have a unique product that will not require razor thin margins. EM referred to esthetics more than once so he seems to believe that customers would prefer a well integrated product that works well and looks good.

 

[electracity]

EM referred to esthetics more than once so he seems to believe that customers would prefer a well integrated product that works well and looks good.

Falcon wing solar panels?

 

[ggr]

Either you really are drinking the Kool-aid or you own shares in both TSLA and SCTY. Even if you believe the synergies are real, SCTY could have acquired for pennies on the dollar in a few months.

Solar City has never been in danger of going out of business. All they need to do to be profitable is to STOP new sales, and live fat dumb and happy on the next 20 years of income with no overhead. Like Tesla, their lack of profitability has been because of reckless growth (and in this case I do mean reckless).

 

[X Yes?]

Ok, so if I understand what happened this morning on the call:

Nobody has done due diligence, Elon repeatedly said the SCTY acquisition is a "no brainier", and he wasn't able to answer tough questions.

WTF. Is he trying to throw this game?! This seems ill thought out. If the opportunity is so important, why wasn't the sales presentation better?

He likely had no sleep. He's in a tough spot being so leveraged in both companies. It's hard to make the case to those that solely own TSLA shares that this is a good deal. This is the best deal for him and his family.

 

[neroden]

Then, there's due diligence on the securitization of scty, which is probably going to be the most controversial part. Read the prospectus yourself. Do a diff compare on all the prospectus docs to see if they are all similar first. So you get an idea. Better yet, post them online and leverage your shareholders as eyeballs.

What are the tranches based on. What happens at each default rate. Randomly sample a few and check if all the documents are in pllace. Double check the people who handle and sign these documents have the proper credentials to do so. If possible, pour over every loans that got securitized. Are there put back clauses where scty have to take back the debt in adverse default conditions. Who originated these. Who thought up the structure of the securitization? Are they malicious? Who is buying these securitization. Can they sue you to get you to buy it back. Are these being resold to retail investors.

My projection on the next two year is a 2% rise in interet rate. SCTY has to pay what? 5%+ prime. What does everything look like with 8% interet rate. What does everything look like in a 4 year recession. My sources from upstream of the supply chain is indicating a recession. Have you modeled a slowdow in sales?

THIS. All of this. If they do all of this, then I could reasonably evaluate the deal, and (if the securitization and bond refinancing situation looks ok) approve it.

 

[Vitold]

He likely had no sleep. He's in a tough spot being so leveraged in both companies. It's hard to make the case to those that solely own TSLA shares that this is a good deal. This is the best deal for him and his family.

That does not make sense. If he is "highly leveraged" in both companies than converting SCTY to TSLA does not get him off the hook.

 

[X Yes?]

Solar City has never been in danger of going out of business. All they need to do to be profitable is to STOP new sales, and live fat dumb and happy on the next 20 years of income with no overhead. Like Tesla, their lack of profitability has been because of reckless growth (and in this case I do mean reckless).

We may find out, this deal is likely to fail. Not sure how they repay the bonds bought by Space X with no new revenue.

 

[X Yes?]

That does not make sense. If he is "highly leveraged" in both companies than converting SCTY to TSLA does not get him off the hook.

It buys him more time. For SCTY, new capital is not going to happen, TSLA seems to be able to raise capital whenever it needs it.

 

[Cosmacelf]

We may find out, this deal is likely to fail. Not sure how they repay the bonds bought by Space X with no new revenue.

SCTY has PPA agreements - they get revenue every month from existing installed solar panels.

 

[X Yes?]

SCTY has PPA agreements - they get revenue every month from existing installed solar panels.

Obviously the economics are not working, thus the stock price.

 

[Jayjs20]

Anyways, definite downward slope on the SP right now. How lowwww will it gooooooo

 

[SBenson]

Good old Chanos on CNBC

Jim Chanos shreds 'shameful' Tesla-SolarCity deal

 

[theschnell]

Obviously the economics are not working, thus the stock price.

This is oversimplification. A temporary liquidity crunch does not mean the fundamental business model is bad. It might be bad, but it might not be. Unfortunately SCTY is so hard to understand that it's difficult to evaluate the business model and its potential. But that does not mean the market is pricing it correctly. It may or may not be.

 

[SBenson]

Here are all analyst reactions:

Wall Street Has Some Questions About Elon Musk's 'Blindingly Obvious' Clean Energy Deal

Vast majority not sold on this.

 

[Vitold]

Good old Chanos on CNBC

Jim Chanos shreds 'shameful' Tesla-SolarCity deal

Hmm, if someone - who is shorting Tesla - is unhappy about the SCTY deal then perhaps it's not such a bad idea

Chanos is also accusing EM of insider trading:

"Finally, it is hard for me to believe that this deal was not being contemplated when Tesla, and Mr. (Elon) Musk himself, sold shares just a few weeks ago."

 

[theschnell]

Hm, if someone - who is shorting Tesla - is unhappy about the SCTY deal than perhaps it's not such a bad idea

Chanos is also accusing EM of insider trading:

He's primarily short SCTY which is why he hates the deal. Because it ruins his SCTY short play.

 

[neroden]

-Model 3 ramp up already has potential of making TSLA fail. Then you add up SCTY.
-Also, SCTY refinances every 2 years according to someone else.

Hey, I think I said that -- to be clear, not ALL of SCTY's financing is that short. *Some* of it is that short. Unfortunately they do not publish a clear schedule of maturities and interest rates the way a financial institution might.

Not only this, I just found out SCTY's interest rate is 6%...

Actually, SCTY has a long list of different interest rates.
Unfortunately they do not publish a clear schedule of maturities and interest rates the way a financial institution might.

 

[Jayjs20]

Seems to be some kind of physiological support at the 200 line

 

[Vitold]

Here are all analyst reactions:

Wall Street Has Some Questions About Elon Musk's 'Blindingly Obvious' Clean Energy Deal

Vast majority not sold on this.

That's not what the article says, overall, it is actually quite positive:

"While a merger of Musk's firms may seem a natural evolution, not all analysts are convinced the acquisition is a good deal for Tesla's shareholders, even while others believe the automaker would be acquiring SolarCity for cheap."

Patrick Jobin, analyst at Credit Suisse Group AG: "we believe the announcement will be met with resistance from TSLA shareholders..."

Alexander Potter, analyst at Piper Jaffray & Co.: "We think this potential deal makes a lot of strategic sense.[...] Big-thinking investors will probably like this approach"

Pavel Molchanov, analyst at Raymond James & Associates: " Put simply, we think there is a deal to be made here, but at a higher price point."

Sophie Karp, analyst at Guggenheim Partners: "We do not see it as a done deal at this point, despite a friendly reception by SCTY management."

Ben Kallo, analyst at Robert Baird & Co.: "We believe the transaction would add cross-selling opportunities for Tesla Energy products and TSLA’s vehicles from SCTY’s large customer base"

Colin Rusch, analyst at Oppenheimer & Co: "While we remain bulls on the solar industry, we do not view this acquisition as the best and highest use of TSLA’s capital and human resources"

Jeffrey Osborne, analyst at Cowen & Co.: "We see a great cultural fit to the deal given both companies already work together - SolarCity is a reseller/installer of PowerWall from Tesla and both companies worked on a utility scale project in Hawaii. "

Joseph Spak, analyst at RBC Capital Markets: "they need to do a better job convincing the market as to why this deal makes strategic (and financial) sense. "

Emmanuel Rosner, analyst at CLSA: "We do not expect much cost efficiency from combining the businesses, and sales synergies seem hypothetical and were not quantified. But mostly we worry Tesla’s foray into a completely different business [...] will amplify execution risks materially further.

Colin Langan, analyst at UBS: "it adds complexity, and most importantly it could potentially be an unneeded distraction for TSLA mgt"

Gordon L. Johnson II, analyst at Axiom Capital Management Inc: "if TSLA truly believes in SCTY, then why such a modest premium?"

Sven Eenmaa, analyst at Stifel Nicolaus & Co. Inc: " we see very limited potential for competing bidders to emerge."